Envestnet and FolioDynamix both represented large scale competition for David Benskin’s wealth management platform Wealth Access.

So when Envestnet let out it was acquiring FolioDynamix, Benskin stopped to ponder what it would mean for his offering. He didn’t get much time to worry ― his phone soon began ringing non-stop with calls from prospective clients.

“Advisors are definitely gravitating toward open architecture and independent software, so the more the big legacy players merge with each other, like Envestnet, Yodlee, Folio DX and eMoney, the more opportunity for us to gain share at their closed architecture, big company expense,” he says.

In the wake of Envestnet’s six-largest acquisition deal in the past decade — it paid $195 million cash for FolioDynamix — smaller wealth management platform providers are aggressively pitching themselves as a more nimble option for RIAs.

Wealth Access CEO David Benskin remembers when he had to collect boxes of receipts and statements from clients to help them plan their finances.
Advisors are gravitating toward open architecture and independent software, says Wealth Access CEO David Benskin.

They’ve adopted the mantle of disruptors, promoting their services on the premise that Envestnet has become too big to serve the little guy.

“The cycles of consolidation and disruption continue to move through the industry,” says Benskin, who recently added Buckingham Asset Management and BAM Advisor Services as clients. “While we would hesitate to say that any one firm is too big, size in-and-of itself does make it more difficult to execute on a strategy, to retain focus, and remain innovative.”

DEFECTIONS
Discussing the merger with Envestnet, Joseph Mrak, FolioDynamix CEO, said he was not concerned that FolioDynamix clients might bleed off. The integration “offers each of our customers the best of both worlds,” Mrak says.

The merger creates a platform serving nearly $2 trillion in assets and 10 million accounts, the firms said in a joint statement.

But there will be defections, says Doug Fritz, CEO of consultancy F2 Strategy.

“If I were a CTO who has to make purchase decisions," he says, "I’m going to ask myself, do I want to go with a provider who may not be able to respond to my needs because it has dozens of clients with several billion in assets? Maybe I want to go for the tried and true provider, or maybe I want to be the customer of a firm who will be able to move quicker, adapt faster and provide me with more customized service?"

Larger firms tend to get larger contracts, Fritz adds, which can bog them down in lengthy, large implementations with legacy technologies. “They become so big that being innovative is difficult. That’s an opportunity for smaller players.”

A number of Envestnet competitors deferred comment on the FolioDynamix deal. Orion CEO Eric Clarke acknowledged the “acquisition highlights the wide net that Envestnet is casting across multiple technologies and firms.”

But Clarke too promoted a pitch of greater flexibility, saying the best portfolio accounting solution is “being an open architecture platform and providing advisors with the freedom to build the tech stack that best compliments their value proposition to clients.”

SMALL MOVES
It’s the smart strategy to play up more customized, smaller scale service, says Joel Bruckenstein, co-creator of the Technology Tools for Today conference series.

“If clients are embedded doing a lot of separately managed accounts, Envestnet has a very competitive offering,” he says. “If it’s a subset of what Envestnet offers, maybe just reporting, an advisor portal, maybe they can compete on that level.”

Envestnet will need to make sure all clients feel appreciated, he adds. “If you’re dealing with a big enterprise firm and you are one of its smaller clients, rightly or wrongly, there may be a perception you might not get the same level of service.”

Envestnet likely has calculated some bleed off, Bruckenstein says.

“There’s likely a minority of clients that left Envestnet for FolioDynamix, and in this case, they will look at all alternatives. It’s not going to be the majority of FolioDynamix clients. But there are always a few of those in a merger."

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